The Production Possibility Curve also known as Production
Possibility Frontier (PPF) is a concave line to the origin of a two axes (X
& Y at 90 degrees) diagram. It indicates maximum output combinations of two
products (goods and services) that an economy is capable of achieving when all
resources are fully and efficiently utilized.
Resources used in production are limited and scarce which
means that an economy would choose to reallocate resources from one product to
another to achieve the set output targets. This is the concept of Opportunity
Cost.
Production Possibility Curve is also commonly known as
Production Possibility Frontier (PPF) or the Transformation Curve.
PPF applicability in the Hospitality Industry is to
definitely assist managers and owners to determine the best combination of
products that can be efficiently produced using the available resources. The
basic assumption is that technology and all other factors remain constant so
managers and decision makers are left with the two products as only choice.
For Example, a restaurant can host 20 Fine Dining and 35
conferences or 35 Fine Dining and 30 Conference. It is up to the manager to set
the output targets that are most beneficial and profitable to the restaurant. The
Opportunity Cost of hosting the extra 15 Fine Dining is 5 Conference Guests
that are forgone.
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